How Are Bonus Decisions Made?

Based on the most helpful WSO content, here are the key points regarding how bonus decisions are made and the criteria involved:

1. Group Head's Influence:

   • The bonus pool is influenced by the group head, who fights for the group's share of the overall bonus pool. This means the group head's ability to advocate for their team can significantly impact the bonuses.

2. Individual Contributions:

   • At the Associate/VP level, bonuses are often not directly correlated to the group's performance. Instead, personal contributions and the perception of those contributions play a significant role. For example, if your work is not seen as directly linked to the P&L, it might cap your bonus.

3. Static vs. Variable Amounts:

   • In some firms, bonus amounts are relatively static across coverage groups (e.g., A1 middle bucket in TMT = A1 middle bucket in Sponsors). However, there can be significant variations even at the same level in different groups.

4. Experience and Performance:

   • Experience can set a range for your bonus, but personal performance and contributions are crucial. High bonuses (e.g., over $1 million) typically require significant, formulaic contributions and running strategies developed independently.

5. Revenue and Group Performance:

   • While individual group revenue is a factor, it is not the sole determinant. The overall bonus pool and how it is divided among groups depend on various factors, including the group head's advocacy and the firm's overall performance.

6. Bonus Tiers:

   • Bonuses are often categorized into tiers or "buckets," with different ranges. For instance, buckets might range from $300k to over $1 million, with higher tiers requiring more substantial contributions.

In summary, bonus decisions are multifaceted, involving individual performance, group head influence, and sometimes static amounts across groups. Personal contributions and the ability to link work directly to the firm's profitability are critical factors.

Sources: 2015-2016 salary & bonus discussion, 2015-2016 salary & bonus discussion, 2020 bonuses, Associate guide on analyzing an income statement, How is bonus split determined (ie cash vs stock)